DCIT, CIRCLE - 19(1), NEW DELHI V. RAPID ENGINEERING COMPANY PVT. LTD., NEW DELHI

ITA 3522/DEL/2024

AI Insights

The case revolves around an appeal by the Deputy Commissioner of Income Tax (DCIT) against Rapid Engineering Co. Pvt Ltd concerning the assessment year 2020-21. The primary issue was the retrospective application of the amendment made by the Finance Act 2020 to section 56(2)(x) of the Income Tax Act, which enhanced the tolerance range for discrepancies between the stamp duty valuation and actual sale consideration from 5% to 10%. The Assessing Officer had initially made an addition to the income of the assessee based on this discrepancy. However, the CIT(A) reversed this decision, leading to the Revenue's appeal to the Tribunal. The Tribunal, referencing similar cases and precedents, upheld the CIT(A)'s decision, agreeing that the amendment is retrospective and thus applicable to the case at hand.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668915 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2020-2021
• Other Referred Cases: Amrapali Cinema vs. DCIT, Maria Fernandes Cheryl vs ITO, Rajeev Kumar Agarwal vs ACIT, CIT vs Ansal Landmark Township Pvt Ltd, Dharmashibhai Sonani vs ACIT, CIT vs Vummudi Amarendran, Sandeep Kumar Poddar vs ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: SUMIT BANSAL
• Keywords: Retrospective amendment; Sale consideration of property below Jantri Value; Fair market value; Capital Gains; Valuation report
• Section: 143(3); 50C; 40(a)(ia)

Judgement Text

"ITA No. 3522/DEL/2024 (A.Y. 2020-21) The Dy. C.I.T Vs.Rapid Engineering Co. Pvt Ltd Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘F’ BENCH, NEW DELHI BEFORE Ms. MADHUMITA ROY, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 3522/DEL/2024 (A.Y. 2020-21) The Dy. C.I.T Vs. Rapid Engineering Co. Pvt Ltd Circle – 19(1) 111-112, DSIDC Sheds Delhi Okhla Phase – 1, New Delhi PAN – AAACR 1163 L (Applicant) (Respondent) Assessee By : Shri Sumit Bansal, CA Department By : Ms. Harpreet Kaur Hansra Sr. DR Date of Hearing : 03.06.2025 Date of Pronouncement : 25.06.2025 ORDER PER NAVEEN CHANDRA, A.M:- This appeal by the Revenue is directed against the order of the NFAC, Delhi dated 20.06.2024 for A.Y 2020-21. ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 2 of 11 2. The solitary grievance of the Revenue is as under: “Whether on the facts in the circumstances of the case the CIT(A) was right in holding that the assessee amendment made by the Finance Act 2020 to the provisions of section 56(2)(x) enhancing the tolerance range to 10% is retrospective in nature and accordingly in deleting the disallowance of Rs. 2,52,80,000/-“ 3. Briefly, the facts of the case are that the assessee filed its return of income on 31.12.2020 declaring total income of Rs. 26,99,24,830/-. The case was selected for Complete Scrutiny assessment under the Faceless Assessment Scheme, 2019. The assessee, during the year under consideration, had purchased industrial unit No. 054, Block-C. Phase-II Noida for a total sale consideration as follows: Sale consideration for land & building (basic value) 30,71,25,000 Stamp Duty 1,66,30,500 Noida Authority transfer charge 68,34,870 GST on above transfer charge @ 18% 12,30,090 Total Cost 33,18,20,460 Circle rate for land & Building 33,24,05,000 Difference 2,52,80,000 Difference in % of sale consideration 8.2% ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 3 of 11 4. The Assessing Officer in the impugned assessment order u/s 143(3) of the Act dated 25.09.2022 made an addition of Rs. 2,52,80,000/- u/s 56(2)(x) of the Act being the difference between circle rate of industrial property purchased and the purchase consideration therein. 5. Aggrieved by the above, the assessee went in appeal before the ld. CIT(A) who after considering the facts and submissions and relying upon various decisions including the decision in the case of Amrapali Cinema 127 taxmann.com 376 order dated 28.04.2021, held that the application of tolerance limit under the provision of 56(2)(x) is retrospective as the amendments are curative and procedural and deleted the addition made. 6. Now the Revenue is aggrieved and is in appeal before us. 7. We have heard the rival submissions and have perused the relevant material on record. We find that under similar facts and circumstances, the co-ordinate bench at Delhi in the case of Amrapali Cinema (supra) order dated 28.04.2021 considered the issue of retrospective effect of 3rd proviso of section 50C(1) of the Act and held as under: ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 4 of 11 “8. We have heard the rival contentions and perused the material available on record. We find that there is no dispute with regard to fact that fair market value determined by the DVO at Rs. 8,89,63,168/- against the actual sale consideration of Rs.8,78,00,000/- as disclosed in Sale Deed. The resulting difference is Rs.11,63,168/- which is 1.02%. The Co-ordinate Bench of this Tribunal in the case of Maria Fernandes Cheryl vs ITO (supra) has held as under:- 7. \"These submissions, however, do not impress us. As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that \"It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location\". Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an \"unintended consequence\" of Section 50(1) that even in such bonafide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position- as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific ITA No. 4850/Mum/2019 Assessment year: 2011-12 time period only. There is no good reason for holding the curative amendment to be only as prospective in effect. Dealing with a somewhat materially identical situation in the case of Rajeev Kumar Agarwal Vs ACIT [(2014) 45 taxmnann.com 555 (Agra)] wherein a coordinate bench was dealing with the question whether insertion of a proviso to Section 40(a)(i) to ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 5 of 11 cure intended consequence could have retrospective effect, even though not specifically provided for, and speaking through one of us (i.e. the Vice President), the coordinate bench had, after a detailed analysis of the legal position, observed that, \"Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced\". Referring to this decision, and extensively reproducing from the same, including the portion extracted above, Hon'ble Delhi High Court, in the case of CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 61 taxmann.com 45 (Del)], has approved this approach and observed that \"the Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance\". The same was the path followed by another bench of this Tribunal in the case of Dharmashibhai Sonani Vs ACIT [(2016) 161 ITD 627 (Ahd)] which has been approved by Hon'ble Madras High Court in the judgment reported as CIT Vs Vummudi Amarendran [(2020) 429 ITR 97 (Mad)]. The question that we must take a call on, therefore, is as to what is the rationale behind the insertion of the third proviso to Section 50C(1), and if that rationale is to provide a remedy for unintended consequences of the main provision, we must hold that the third proviso to Section 50C(1) comes into force with effect from the same date on which the main provision, ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 6 of 11 unintended provisions of which are sought to be nullified, itself was brought into effect. Let us understand what the nature of the provisions of Section 50C is. In terms of this provision, if the property is sold below the stamp duty valuation rate, which is often called circle rate, this stamp duty valuation report is assumed as sale consideration for the property in question, and, accordingly, capital gains tax is levied. This deeming fiction to substitute apparent sale considerations by notional consideration computed on the basis of a stamp duty valuation rate, was thus to address the issue with respect to potential evasion of taxes by understating the sale consideration amount in a sale deed. As noted by the CBDT, while explaining the justification for insertion of Section 50 C, \"the Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property\". Section 50C, thus, on a conceptual note, is a provision to address capital gains tax evasion on account of understatement of the consideration. Of course, the law provides, under section 50C(2), that wherever an assessee claims that the actual market rate is less than the stamp duty valuation, he can have the matter referred to a Departmental Valuation Officer for the ascertainment of the market value, but then it is a cumbersome procedure and, at the end of the day, every valuation, whether by the departmental valuation officer or under the stamp duty valuation notification, is an estimate, and there can always be bonafide variations, though to a certain limited extent, in these estimations. Unless, therefore, some kind of a tolerance band or a safe harbour provision, in respect of such bonafide variations, is implicit in the scheme of law, the assessees are bound to face undue hardships. The mechanism under section 50C proceeds on the assumption that when the sale consideration is less than the stamp duty valuation, the sale consideration is to be treated as understated. This assumption is, however, laid to rest when the variations between the stated consideration and the stamp duty valuation figure are ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 7 of 11 treated as explained. The insertion of the third proviso to Section 50C(1) provides for this tolerance band with respect to a certain degree of variations between the stamp duty valuation and the stated consideration of an immovable property. In other words, as long as the variations are within the permissible limits, the anti-avoidance provisions of Section 50C do not come into play. As we have noted earlier, the CBDT itself accepts that there could be various bonafide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis-à-vis the stamp duty valuation for the said immovable property. Obviously, therefore, disturbing the actual sale consideration, for the purpose of computing capital gains, and adopting a notional figure, for that purpose, will not be justified in such cases. On a conceptual note, an estimation of market price is an estimation nevertheless, even if by a statutory authority like the stamp duty valuation authority, and such a valuation can never be elevated to the status of such a precise computation which admits no variations. The rigour of Section 50C(1) was thus relaxed, and very thoughtfully so, to take these bonafide cases of small variations between the stated sale consideration vis-à-vis stamp duty valuation, out of the scope of adjustments contemplated in the computation of capital gains under this anti-avoidance provision. In our humble understanding, it is a case of a curative amendment to take care of unintended consequences of the scheme of Section 50C. It makes perfect sense, and truly reflects a very pragmatic approach full of compassion and fairness, that just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee, and subject the assessee to practically prove his being truthful in stating the sale consideration. Clearly, therefore, this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure to address a bonafide situation where there is little justification for invoking an anti- avoidance provision. Similarly, so far as enhancement of tolerance band to 10% by the Finance Act 2020, is concerned, as noted in the CBDT circular itself, it was done in response to the representations of the stakeholders for enhancement in the tolerance band. Once the Government acknowledged this genuine hardship to the taxpayer and addressed the issue by a suitable amendment in law, the next question ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 8 of 11 was what should be a fair tolerance band for variations in these values. As a responsive Government, which is truly the hallmark of the present Government, even though the initial tolerance band level was taken at 5%, in response to the representations by the stakeholders, this tolerance band, or safe harbour provision, was increased to 10%. There is no particular reason to justify any particular time frame for implementing this enhancement of tolerance band or safe harbour provision. The reasons assigned by the CBDT, i.e., \"the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location,\" was as much valid in 2003 as it is in 2021. There is no variation in the material facts in this respect in 2021 vis-à-vis the material facts in 2003. What holds good in 2021 was also good in 2003. If variations up to 10% need to be tolerated and need not be probed further, under section 50C, in 2021, there were no good reasons to probe such variations, under section 50C, in the earlier periods as well. We are, therefore, satisfied that the amendment in the scheme of Section 50 C(1), by inserting the third proviso thereto and by enhancing the tolerance band for variations between the stated sale consideration vis-à-vis stamp duty valuation to 10%, are curative in nature, and, therefore, these provisions, even though stated to be prospective, must be held to relate back to the date when the related statutory provision of Section 50C, i.e. 1st April 2003. In plain words, what is means is that even if the valuation of a property, for the purpose of stamp duty valuation, is 10% more than the stated sale consideration, the stated sale consideration will be accepted at the face value and the anti-avoidance provisions under section 50C will not be invoked. 8. Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of Section 50C in the sense that even in the cases of genuine variations between the stated consideration and the stamp duty valuation, anti-avoidance provisions under section 50C could be pressed into service, and thus remedied the law, there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced. These amendments are thus held to be retrospective in ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 9 of 11 effect. In our considered view, therefore, the provisions of the third proviso to Section 50C (1), as they stand now, must be held to be effective with effect from 1st April 2003. We order accordingly. Learned Departmental Representative, however, does not give up. Learned Departmental Representative has suggested that we may mention in our order that \"relief is being provided as a special case and this decision may not be considered as a precedent\". Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of \"equality before the law,\" which is one of our most cherished constitutional values. Our judicial functioning has to be even- handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea of the assessee.\" 9. Respectfully following the same, we direct the Assessing Officer to delete the addition. Thus, Grounds of appeal raised by the assessee in this appeal are allowed. 10. In the result, the appeal of the assessee is allowed.” 8. Similar decision was rendered by the ITAT Kolkata Bench in the case of Sandeep Kumar Poddar Vs. ITO 151 taxmann.com 18. 9. Respectfully following the ratio of the ITAT decisions cited above, we are of the considered view that the amendment of increasing tolerance band from 5% to 10% u/s 56(2)(x) brought in the Finance Act, 2020 be read retrospectively being clarificatory/curative in nature and since the difference between the valuation of property for stamp duty and actual ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 10 of 11 consideration being less than 10%, no addition is called for. Grounds taken by the Revenue stand dismissed. 10. In the result, appeal of Revenue in ITA No. 3522/DEL/2024 is dismissed. Order pronounced in open court on 25.06.2025. Sd/- Sd/- [MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25th June, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi ITA No. 3522/DEL/2024 (A.Y. 2020-21) DCIT Vs Rapid Engineering Co.Pvt Ltd Page 11 of 11 Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order . 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "